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Realtors say low appraisals sinking deals
In many cases, homes valued well below offers on table
Tuesday, June 9, 2009 | 2 a.m.
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- Price of existing homes drops to '98 levels (5-22-2009)
- Report: Vegas home prices at 1998 levels (5-19-2009)
- Foreclosure filings drop (5-15-2009)
- Valley home prices plummet toward ZIP (5-15-2009)
Despite a 77 percent increase in existing-home sales this year, some Realtors are complaining that lowball appraisals are stifling sales.
First-time homebuyers and investors are leading the sales charge with home prices at their lowest in a decade, but Realtors contend that several appraisers are setting values much lower than they should be — and those appraisals are killing sales.
Some call it an overreaction to the housing boom, when some appraisers were accused of inflating values in some deals, prompting banks to lend more money than the properties were worth. Appraisers contend they are setting prices based on those of comps, or comparable properties, on the market.
Mark Stark, owner of Prudential Americana, said he thinks appraisers are focusing too much on projecting what values will be instead of what they really are.
“The appraisers are being very conservative,” Stark said. “They are trying to cover themselves.”
What’s happening with appraisals has been felt most in listings by homeowners who may, for example, have bought their homes for $300,000 and are now selling them for $220,000, Stark said. If the appraisal in such a deal comes in at $205,000, that would force the seller to lower the price, or the buyer would have to come up with $15,000 to make up the difference because the bank would lend only up to the appraised value, Stark said.
“The owner would rather tell them to drop dead than cut their price another $15,000,” Stark said. “I would say it is not causing us to lose all of these sales, but it is affecting 20 to 25 percent of the sales.”
About two-thirds of the existing-home sales have been of lender-owned properties.
Julie Burkart, an appraiser with Southwest Appraisal Service in Las Vegas, said everyone is surprised by the decline in values and suggested the drop is not due to appraisers trying to cover themselves. They are basing their decisions on the data they have, she said.
“They are not worried about covering themselves if they are doing a good job,” Burkart said. “There are a lot of people out there who think their homes are excluded from the price drops, but they are not.”
But Mark Madsen, communications director of Raintree Mortgage Services, suggested some appraisers don’t want to come in too high with the values so that they can keep working.
“I think appraisers are scared to get blacklisted,” Madsen said. “If the appraisals are too high, then banks may no longer accept appraisals from that person.”
The issue of low appraisals has been an ongoing concern of homebuilders, who said it has cost them sales. It has gotten to the point where appraisers aren’t even adding value to a home if it uses solar energy, said Monica Caruso, spokeswoman for the Southern Nevada Home Builders Association.
Low appraisals are not having the same effect on foreclosure properties because banks don’t have an emotional attachment to a property, Stark said. Banks realize they have to lower the price if the appraisal comes in at less than the agreed price and the buyer isn’t willing to increase the down payment.
That, however, has created problems for some buyers who bid over the list price for a bank-owned home, only to lose out to someone who may have offered less but was willing to pay cash, Stark said.
“The buyers are blaming us and asking what funny business is going on when banks are accepting an offer that’s $20,000 less,” Stark said.
He said he understands that appraisals are not an exact science, and it’s difficult to get the value down to the penny, but that doesn’t lessen his concerns.
“I am not trying to beat up on the appraisal system, but the pendulum has swung too far,” Stark said. “Maybe they need to go after the problem with a scalpel.”
Nancy Tucker, a Realtor with Coldwell Banker Premier, said some of the fault lies with banks selling foreclosure properties. Lenders are listing initial prices that are well under the market value as a way to generate multiple offers.
The lender accepts the highest offer and other buyers fall by the wayside, Tucker said. But when the appraisal is completed for the home, it is well under the price agreed to by the lender and prospective buyer. That is forcing deals to get redone when there is no competition left, she said.
The appraisers see the discrepancy between the list price and winning bid and that has an effect on them, Tucker said.
“I don’t have a problem with the appraisers,” Tucker said. “I don’t think it’s their fault. They can only go with what the comps are.”
A version of this story appears in this week’s In Business Las Vegas, a sister publication of the Sun.
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Prices were artificially, even fraudulently, inflated during the bubble and this is why so many people are now upside down in their loans. If the appraisers are now returning to earth, don't vilify them. Prices need to be in line with incomes. It does no good to keep trying to blow air back into a bubble, or to stay in denial about what prices really should be. Having a few buyers who are still willing to pay more does not mean those houses are worth it--after all, buyers bidding up prices during the bubble helped contribute to artificial price inflation, too. The appraiser's supposed to be a professional who gives an unbiased opinion of the house's real value. I'd sure rather they did that, than "meet the number" at the request of real estate agents, builders, and lenders, who just want to make a bigger commission or whatever.
This is the type of discussion that can get bogged down pretty quickly because most people are unable to take an objective look at it.
EVERYONE has blood on their hands - real estate agents, appraisers, loan officers, banks, Wall Street and even the buyer and seller. If you think otherwise you're delusional. The common denominator is greed, pure and simple.
Foreclosures are distressed, under duress transactions. These are not typical arms-length transactions with willing and able buyers and sellers. But because the foreclosed houses are the dominant force, they have to be reckoned with. But they should be weighed differently than they currently are. The appraisal reconciliation process needs to be weighted more to the replacement/reproduction cost of a house. This will give a more accurate picture of value. Remember, value and price are not the same thing. Remember also that an appraisal in a healthy/normal market is still just an opinion of value at a certain moment in time. Granted, an educated opinion, but still an opinion. As a test, get an appraisal of a home by two independent appraisers and see what happens. My bet is that you will come up with two different values.
What is needed are solid,consistent, sound procedures across the board that will hold up under most scenarios, by lenders and appraisers. As far as the real estate profession is concerned, I agree with some of the posts in the article dated 6/5/09. There are some in the real estate profession that are trying to change the current business model and go to a flat fee business model. But, needless to say, they are fighting the status quo. It is basically a new school versus old school situation. The consumer will have to force them to change.
These days I am teaching realtors how to re-apply their skills to the current marketplace, for their very survival. For the past month, I have been sharing my expertise and appraisal point of view to weekly agents' office meetings, and sharing my "tools" for them to use. The plan is reciprocal, if we can assist the agents trying to help families purchase a new home, then this will create more comparables that can then be used by all appraisers, while valuing the next property.
Watching the banking industry in transition is like driving over a road under construction. We have to drive around those potholes, and watch out for gravel that is getting thrown around, injuring a lot of travelers, and causing a lot of peripheral damage."
My simplified system of five main steps for realtors and agents helps them to take a pro-active approach to this market. They are used to working hard at the front end, marketing the home. They are not used to having to carefully shepherd the mortgage process as well. Now, if they want to close the sale, they need to add these tools to their toolbelt. These days, they are often saddled with having to use an out-of-area appraiser carelessly send by the appraisal management company.
These appraisers should be refusing to accept these orders, based on the appraisal USPAP concept of "Geographic Competence". But they are too desperate, only making 50% of their normal fees from a year ago. Some agents sometimes refuse to allow these appraisers access to the property, but often you cannot tell ahead of time. My system provides a form of insurance. Its not 100% effective, but I can assure you it will result in over 50% more closings in these difficult times.
To download a .pdf copy of these five steps, go to the Ebert Appraisal Service website at www.eas2.org, and click on the bottom "5 Tips".